U.S. Delayed Charges Against 4 Iraqi Officials

The Justice Department delayed filing criminal charges against four Iraqi officials and two government-owned banks in a $4-billion loan-fraud scheme in early 1990 when the Bush Administration was struggling to retain close ties to Baghdad, according to confidential documents and interviews.

The indictment was not brought until the day after President Bush ordered a cease-fire in the Persian Gulf War. That was more than a year after the U.S. attorney and his assistant handling the case notified officials at two federal agencies charges were imminent, according to the documents.

Even when the charges were filed, the government-owned Central Bank of Iraq was removed as a defendant after last-minute objections by the State Department, according to classified records.

While the documents do not spell out why the indictment was delayed, records and interviews show that, from the outset, the case caused grave concerns in the Bush Administration over its potential impact on U.S. relations with the regime of Saddam Hussein.

The delay raises further questions about the secret accommodations the Administration provided for the Iraqi government in a vain effort to curry its favor.

Had the charges been brought in early 1990, they would have created a substantial hurdle for the Administration’s efforts to provide Iraq with another $500 million in promised loan guarantees from the Agriculture Department.

Allegations of high-level Iraqi government collusion in the scheme also would have sounded a new alarm in Congress, which already was skeptical about U.S. aid to Saddam Hussein.

Investigators in the case speculated that the delay eliminated the chance to arrest Iraqi government officials involved in the scheme. Two Iraqi officials were in the United States in early 1990 and might have been arrested, said the investigators. By the time the indictment was returned on Feb. 28, 1991, however, the officials were in Baghdad and out of reach of U.S. law enforcement.

“My feeling is that it was delayed until it became politically nice,” said a federal investigator familiar with the case. “It would have precipitated a decline in our relationship with Iraq.”

A Justice Department official in Washington denied that political or foreign-policy considerations played any role in the timing of the indictment.

“I don’t think it was delayed for any reason other than that it wasn’t ready,” said the official. “It was a complex case.”

The case involved $4 billion in loans made to Iraq in the late 1980s by the Atlanta branch of Italy’s Banca Nazionale del Lavoro, or BNL. About $900 million of those loans were backed by guarantees from the Agriculture Department’s Commodity Credit Corp.

On Aug. 4, 1989, agents from the FBI and Customs Service raided the BNL branch and seized thousands of documents after a tip from two bank employees that loans to Iraq far exceeded limits imposed by bank officials in Rome and levels reported to U.S. regulators.

The investigators discovered evidence that the branch had provided billions in secret, unsecured loans to the Iraqi government and contractors that it controlled. The Iraqis allegedly lied to the bank officials about the purpose of the loans, and investigators said that much of the money was apparently used to finance military projects.

An attorney for BNL, who spoke on the condition that his name be withheld, said it was clear immediately that the massive fraud involved the Iraqi government.

That assessment is supported by an internal Customs report, dated Sept. 21, 1989, which said investigators already had evidence linking BNL loans “to various U.S. firms for the illegal export to Iraq of missile-related technology.”

Among the documents found at BNL was a 1989 telex wishing a happy Easter to the bank staff. It was from Hussain Kamil, Saddam Hussein’s son-in-law and Iraq’s minister of industry and military production.

Another Iraqi official implicated early was Safa al-Habobi, director of Iraq’s main weapons complex and an officer in several companies identified by U.S. intelligence as fronts for Baghdad’s worldwide arms-procurement network.

In the fall of 1989, the potential BNL scandal was raised by the Federal Reserve Board and Treasury Department to try to halt the Commodity Credit Corp. loan guarantees for Iraq. A confidential Federal Reserve document said: “The State Department is trying to determine whether the actions of Iraq in the BNL case were those of renegade Iraqis or reflected official Iraqi government policy. The latter case appears to be true.”

However, when the Agriculture Department responded by trying to cut Iraq’s CCC loan guarantees to $400 million from $1 billion, the Bush Administration downplayed the case and mounted a strenuous campaign to block any cut.

Administration officials invoked a secret national security decision issued by President Bush in early October ordering U.S. agencies to expand economic ties with Baghdad. And, despite warnings of Iraqi government involvement in the BNL fraud, Secretary of State James A. Baker III personally persuaded then-Secretary of Agriculture Clayton K. Yeutter to restore the $1 billion.

Pressure also was coming from Italian leaders concerned about the impact on BNL, which is owned by the Italian government. On Oct. 19, 1989, the bank’s two top officers--both prominent politicians--sought the help of the new American ambassador in Rome, Peter Secchia.

By early 1990, the federal prosecutor in Atlanta handling the case, Gale McKenzie, and her boss, U.S. Atty. Robert L. Barr Jr., expected indictments very soon, according to confidential records.

In a joint letter on Jan. 9, 1990, to the Federal Reserve Bank requesting assistance from one of its attorneys in the probe, Barr and McKenzie discussed “the speed and depth” of the investigation and said that the indictment was anticipated “early next month.”

On Feb. 6, 1990, a Federal Reserve memo also quoted McKenzie as saying charges were expected that month. But that memo also reported that McKenzie had said elements of the case had been taken over by Justice Department headquarters in Washington.

An Administration official said it was normal for headquarters to take a keen interest in such a case. Indeed, later in 1990, then-Atty. Gen. Dick Thornburgh wrote a letter to House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) asking him to postpone the committee’s inquiry into the BNL case because it was “sensitive . . . with national security concerns.”

It was not until February, 1991, with the air war in the Gulf under way, that the Justice Department in Washington conducted a final review of the indictment proposed by the U.S. attorney’s office in Atlanta.

According to a secret government report, the prosecutors wanted to indict the Central Bank of Iraq and its government-owned commercial equivalent, Rafidain Bank, as part of the conspiracy to defraud BNL. Charging the Central Bank, the prosecutors said, would allow them to freeze $1.5 billion in Iraqi assets.

Also slated to be charged were two Iraqis who were top officers of both banks as well as Safa al-Habobi and another procurement official, the BNL Atlanta manager and two other BNL employees.

Before final approval, Justice sent the proposed list to the State Department. Officials there did not oppose indicting the individuals or Rafidain Bank, but they did object to charging the Central Bank.

“It could complicate post-crisis dealing with CBI, which will be an important element in any reconstruction regime,” the State Department said.

The Justice Department had already written the 347-count indictment and accompanying press release listing the Central Bank as a defendant, according to an Administration official. In a last-minute effort, the documents were rewritten to remove the bank. The charges were finally filed on Feb. 28, 1991, against bank employees, Rafidain Bank and Iraqi officials.

McKenzie declined to comment on the case, but her immediate supervisor, Gerrilyn G. Brill, said that the early predictions on the indictment were “overly optimistic” and she denied that there was any interference.

The BNL employees go to trial in June. The Iraqi officials and Rafidain Bank have not been arrested or made an appearance in the case.